We make every effort to understand the way that investors go to extremes over what we call the “well-known fact” in the stock market. A “well-known fact” is a body of economic information which is known to virtually everyone in the marketplace and has been acted on by anyone with capital.
Today’s popular stocks have literally overwhelmed the stock market in the last four years and six months. To understand today’s financial euphoria, we will analyze three terrific movies made by the actor, Jim Carrey. In Liar Liar, The Truman Show and in Bruce Almighty, we learn morals which we believe should guide us in the long-duration investment process.
In the 1960’s, the slogan “Make Love, Not War” became a rally cry for anti-war protestors, but also typified their free love expression. They used the slogan to explain the harshness of the situation in Vietnam and to be countercultural to the capitalist and traditional way of life they saw in American society.
The stock market has put on quite a show over the last decade. Including dividends, domestic stocks have nearly quadrupled since the bottom in March 2009. Most of the crowd missed the best parts of the broader show, but that hasn’t stopped the excitement being built around the encore.
The patriarch of value investing, Ben Graham, once said, “In the short run the market is a voting machine, but in the long run it is a weighing machine.” His statement is just as profound as the day it was first spoken. However, it is timelessly mystifying to most investors.
We believe the math of common stock investing is pretty simple. When you buy a stock without leverage, you can only lose your original investment. Your gains can be unlimited over the longest term (long duration). Most of the benefit (90%) of diversification is reached by owning a twelve-to-eighteen stock portfolio...
Massive investor popularity can produce some pretty strange circumstances in the U.S. stock market. Mark Twain said, “History doesn’t repeat itself, but it rhymes!” Today’s strange occurrence has been called a “zero cost of capital” and it rhymes with what happened in 1999-2000.
What will the next ten years look like in the U.S. stock market? As we often do, we refer you to one of our favorite songs, “I Can Only Imagine,” and a book by George Friedman, The Next 100 Years. We believe the best performing securities of the next ten years will be very different from the securities and the sectors which currently capture the “popular imagination” of investors.
Much like the 1975 Billboard top ten hit song, Feelings, Warren Buffett and Charlie Munger laid out their feelings on a variety of issues in Omaha at the Berkshire Hathaway (BRKB) Annual Meeting. We believe even the greatest investors of all time are being influenced by a mirage.
Elon Musk is possibly the most interesting man in the world, in our opinion. His nobility comes from his past as a founder of PayPal, but his popularity only grows in this era as he seeks to tackle big projects that include the car business, space, mass transit and other subjects.